Inside Steve's Brain

Business Lessons from Steve Jobs, the Man Who Saved Apple

Leander Kahney

• Publisher: Atlantic Books
• Year: 2010
• ISBN:
  9781848877849
• Topic: Betriebswirtschaft
• Subtopic: Wirtschaftsbiographien

Chapter 1

Focus: How Saying “No” Saved Apple

“I’m looking for a fixer-upper with a solid foundation. Am willing to tear down walls, build bridges, and light fires. I have great experience, lots of energy, a bit of that ‘vision thing’ and I’m not afraid to start from the beginning.”

—Steve Jobs’s résumé at Apple’s .Mac website

One bright July morning in 1997, Steve Jobs returned to the company he had cofounded twenty years before in his bedroom.

Apple was in a death spiral. The company was six months from bankruptcy. In just a couple of years, Apple had declined from one of the biggest computer companies in the world to an also-ran. It was bleeding cash and market share. No one was buying its computers, the stock was in the toilet, and the press was predicting its imminent passing.

Apple’s top staff were summoned to an early-morning meeting at company HQ. In shuffled the then-current CEO, Gilbert Amelio, who’d been in charge for about eighteen months. He had patched up the company but had failed to re-ignite its inventive soul. “It’s time for me to go,” he said, and quietly left the room. Before anyone could react, Steve Jobs entered the room, looking like a bum. He was wearing shorts and sneakers and several days’ worth of stubble. He plonked himself into a chair and slowly started to spin. “Tell me what’s wrong with this place,” he said. Before anyone could reply, he burst out: “It’s the products. The products SUCK! There’s no sex in them anymore.”¹

The Fall of Apple

Apple’s fall was quick and dramatic. In 1994, Apple commanded nearly 10 percent of the worldwide multibillion-dollar market for personal computers. It was the second biggest computer manufacturer in the world after the giant IBM.² In 1995, Apple shipped the most computers it had ever sold—4.7 million Macs worldwide—but it wanted more. It wanted to be like Microsoft. It licensed the Macintosh operating system to several computer makers, including Power Computing, Motorola, Umax, and others. Apple’s management reasoned that these “clone” machines would grow the overall Mac market. But it didn’t work. The Mac market remained relatively flat, and the clone makers simply took sales away from Apple.

In the first quarter of 1996, Apple reported a loss of $69 million and laid off 1,300 staff. In February, the board fired CEO Michael Spindler and appointed in his place Gil Amelio, a veteran of the chip industry with a reputation as a turnaround artist. But in the eighteen months that Amelio was on the job, he proved ineffectual and unpopular. Apple lost $1.6 billion, its market share plummeted from 10 percent to 3 percent, and the stock collapsed. Amelio laid off thousands of workers, but he was raking in about $7 million in salary and benefits, and was sitting on $26 million in stock, according to the New York Times. He lavishly refurbished Apple’s executive offices and, it was soon revealed, negotiated a golden parachute worth about $7 million. The New York Times called Amelio’s Apple a “kleptocracy.”³

But Amelio did several things right. He canceled a raft of money-losing projects and products, and trimmed the company to stem the losses. Most important, he bought Jobs’s company, NeXT, hoping that its modern and robust operating system could replace the Macintosh operating system, which was becoming very creaky and old.

The NeXT purchase came about by accident. Amelio was interested in buying the BeOS, a fledgling operating system built by a former Apple executive, Jean Louis Gassée. But while they were haggling, Garret L. Rice, a NeXT salesman, called Apple out of the blue, suggesting they take a look. Apple’s engineers hadn’t even considered NeXT.

His interest piqued, Amelio asked Jobs to pitch the NeXT operating system.

In December 1996, Jobs gave Amelio an impressive demonstration of NeXT. Unlike the BeOS, NeXT was finished. Jobs had customers, developers, and hardware partners. NeXT also had a full suite of advanced and very highly regarded programming tools, which made it very easy for other companies to write software for it. “His people had spent a lot of time thinking about key issues like networking and the world of the internet—much more so than anything else around. Better than anything Apple had done, better than NT, and potentially better than what Sun had,” Amelio wrote.⁴

During negotiations, Jobs was very low key. He didn’t over-sell. It was “a refreshingly honest approach, especially for Steve Jobs,” Amelio said.⁵ “I was relieved he wasn’t coming on like a high-speed train. There were places in the presentation to think and question and discuss.”

The pair hammered out the deal over a cup of tea in Jobs’s kitchen at his house in Palo Alto. The first question was the price, which was based on the stock price. The second question concerned the stock options held by his NeXT employees. Amelio was impressed that he was watching out for his staff. Stock options have traditionally been one of the most important forms of compensation in Silicon Valley, and Jobs has used them many times to recruit and retain key staff, as discussed later in Chapter 5. But in November 2006, the SEC launched a probe into more than 130 companies, including Apple, that embroiled Jobs in accusations of improperly backdating options to inflate their worth. Jobs denied knowingly breaking the law, and the SEC investigation is still ongoing.

Jobs suggested they go for a walk, a surprise to Amelio but a standard Jobs tactic.

“I was hooked in by Steve’s energy and enthusiasm,” Amelio said. “I do remember how animated he is on his feet, how his full mental abilities materialize when he’s up and moving, how he becomes more expressive. We headed back for the house with a deal wrapped up.”⁶

Two weeks later, on December 20, 1996, Amelio announced that Apple was buying NeXT for $427 million. Jobs returned to Apple as a “special advisor” to Amelio, to help with the transition. It was the first time Jobs had been at the Apple campus in almost eleven years. Jobs had left Apple in 1985 after a failed power struggle with then-CEO John Sculley. Jobs had quit before he could be fired, and he had set up NeXT as a direct rival to Apple, hoping to run Apple out of business. Now he thought it might be too late to save Apple.

Enter the iCEO

At first Jobs was reluctant to take on a role at Apple. He was already CEO of another company—Pixar, which was just starting to take off with the enormous success of its first movie, Toy Story. With his success in Hollywood, Jobs was reluctant to get back into the technology business at Apple. Jobs was tiring of cranking out technology products that were quickly obsolete. He wanted to make things that were longer lasting. A good movie, for example. Good storytelling lasts for decades. In 1997, Jobs told Time:

“I don’t think you’ll be able to boot up any computer today in 20 years. [But] Snow White has sold 28 million copies, and it’s a 60-year-old production. People don’t read Herodotus or Homer to their kids anymore, but everybody watches movies. These are our myths today. Disney puts those myths into our culture, and hopefully Pixar will, too.”⁷

Perhaps more important, Jobs was skeptical that Apple could stage a comeback. He was so skeptical, in fact, that in June 1997 he had sold the 1.5 million shares he’d received for the NeXT purchase at rock-bottom prices—all except for a single symbolic share. He didn’t think Apple had a future worth more than one share.

But in early July 1997, Apple’s board asked Amelio to resign following a string of terrible quarterly financial results, including one that resulted in a loss of three-quarters of a billion dollars, the biggest loss ever for a Silicon Valley company.⁸

The common perception is that Jobs ousted Amelio after backstabbing him in a carefully engineered boardroom coup. But there’s no evidence to suggest that Jobs planned to take over the company. In fact, the opposite seems to be true. Several people interviewed for this book said Jobs initially had no interest whatsoever in returning to Apple—he was too busy with Pixar, and he had little confidence that Apple could be saved.

Even Amelio’s own autobiography makes it clear that Jobs had no interest in taking the helm at Apple, if you ignore Amelio’s assertions to the contrary. “He had never intended that the deal would include his giving Apple any more than some portion of his attention,”⁹ Amelio wrote. Earlier in his book, Amelio noted that Jobs wanted to be paid in cash for the purchase of NeXT; he didn’t want any Apple stock. But Amelio insisted on paying a large portion in shares because he didn’t want Jobs walking away. He wanted Jobs committed to Apple, to have “some skin in the game,” as he put it.¹⁰

Amelio does accuse Jobs several times of engineering his dismissal so that he, Jobs, could take over, but presents no direct evidence. It’s more comforting for Amelio to blame his dismissal on maneuvering by Jobs than on the more straightforward explanation that Apple’s board had lost confidence in him.

After firing Amelio, Apple’s board had no one else to turn to. Jobs had already been dispensing advice to the company in his role as special advisor to Amelio (nothing particularly Machiavellian about that). The board asked Jobs to take over. He agreed to—temporarily. After six months, Jobs adopted the title of interim CEO, or iCEO, as he was jokingly referred to inside Apple. In August, Apple’s board officially made Jobs the interim CEO while it continued to look for a permanent replacement. Wags noted that instead of Apple acquiring Jobs when it purchased NeXT, Jobs had acquired Apple but had cleverly arranged it so that Apple paid him.

When Jobs took over, Apple sold about forty different products—everything from inkjet printers to the Newton handheld. Few of them were market leaders. The lineup of computers was particularly baffling. There were several major lines—Quadras, Power Macs, Performas, and PowerBooks— each with a dozen different models. But there was little to distinguish between the models except their confusing product names—the Perfoma 5200CD, Perfoma 5210CD, Perfoma 5215CD, and Perfoma 5220CD.

“What I found when I got here was a zillion and one products,” Jobs would later say. “It was amazing. And I started to ask people, now why would I recommend a 3400 over a 4400? When should somebody jump up to a 6500, but not a 7300? And after three weeks, I couldn’t figure this out. If I couldn’t figure this out . . . how could our customers figure this out?”¹¹

One engineer I interviewed who worked at Apple in the mid-1990s remembers seeing a poster-cum-flow-chart pinned to a wall at Apple’s HQ. The poster was titled How to Choose Your Mac and was supposed to guide customers through the thicket of choices. But it merely illustrated how confused Apple’s product strategy was. “You know something is wrong when you need a poster to choose your Mac,” the engineer said.

Apple’s organizational structure was in similar disarray. Apple had grown into a big, bloated Fortune 500 company with thousands of engineers and even more managers. “Apple, pre Jobs, was brilliant, energetic, chaotic, and nonfunctional,” recalled Don Norman, who was in charge of Apple’s Advanced Technology Group when Jobs took over. Known as the ATG, the group was Apple’s storied R&D division and had pioneered several important technologies.

“When I joined Apple in 1993 it was wonderful,” he said to me in a telephone interview. “You could do creative, innovative things. But it was chaotic. You can’t do that in an organization. You need a few creative people, and the rest get the work done.”¹² According to Norman, Apple’s engineers were rewarded for being imaginative and inventive, not for the difficult job of knuckling down and making things work. They would invent all day, but rarely did what they were told. As an executive, this would drive Norman crazy. Orders would be handed down, but incredibly, six months later nothing had happened. “It was ridiculous,” Norman said....